Analysis of Politics, Philosophy and Economics from a Marxist Perspective

Tuesday, 17 May 2016

The Rate of Rent

The rate of
rent is the relation of rent to the capital advanced. In that
respect it is the equivalent of the rate of profit, or the rate of
profit of enterprise, or the rate of interest. As Marx explains in
Theories of Surplus Value II, some economists, like Rodbertus,
confused the rate of rent with the other measure of rent, which is
rental. Rental is the amount of rent per unit of land, e.g. acre, or
hectare.

These two
types of measurement can move in different directions. Rent is
surplus profit, i.e. any profit above the average rate of profit.
Where that surplus profit is not the result of some form of monopoly,
it derives from specific advantages for the particular capital that
reduce its costs below those of the average producer. In terms of
agricultural production, the basis of such advantages always reside
in the fertility of the land. These relative differences in
fertility are the basis of Differential Rent I, whereas
Differential Rent II, arises from the incremental investments of
capital. But, Differential Rent I, still provides the basis
for Differential Rent II, because the marginal
productivity of capital, arising from additional investments of
capital, still depends on the level of fertility of the
land, whether the marginal productivity of capital is falling, rising, or constant.

If £1,000
of capital is invested in one hectare of land, and produces 1,000
kilos of grain, that sells at the price of production of £1.20 per
kilo, if the average rate of profit is 20%, then this capital will
only make average profit. No Differential Rent will then
arise. If the farmer invests an additional £1,000 of capital, and
output rises to 2,000 kilos, which again sells at the price of
production of £1.20, the capital will again only make average
profit, and so no Differential Rent will arise.

However, if
this second investment of £1,000 results in output rising to 3,000
kilos, which sell at the price of production of £1.20 per kilo, the
profit will be £1,600, whereas average profit would only have been
£400, so a surplus profit of £1,200 arises. The surplus profit
arises because of the rising marginal productivity of capital, i.e.
the additional investment of capital, brought about a proportionally
larger rise in output – capital doubled, but output trebled. This
£1,200 of surplus profit, therefore, constitutes Differential
Rent II, it arises from this addition of
capital, and not from the relative fertility of this piece of land, but the rising marginal productivity of capital is expressed in a rising fertility of the land.

Differential Rent I remains as the basis of Differential
Rent II, because it is the land whose fertility is raised as a
result of the additional capital. It is on the basis of this higher
fertility of this land that the landlord, now appropriates the £1,200
of rent, even though this increased fertility is the result of the
additional capital applied by the capitalist and not to any
contribution by the landlord. This is one important way that large
landlords accrued wealth, and was particularly significant in London,
in relation to their appropriation of houses built on land leased to
builders and developers.

The rental
in the above case would then be £1,200 per hectare, whilst the rate
of rent would be £1,200/£2,000 = 60%. So, the capital advanced was
£2,000, the value produced was £3,600, giving a total profit of
£1,600. The rate of profit, therefore, was 80%. The average rate
of profit is 20%, giving a surplus profit of 60%, which is
appropriated as rent by the landlord, leaving 20% profit of enterprise for the capitalist farmer.

Suppose that
the price of production for grain rises to £1.40 per kilo. In that
case, the 3000 kilos produced on this land, will now brings in £4,200, making a total profit of £2,200, and a surplus
profit now of £1,800. The additional £200 of surplus profit will
then be due to Differential Rent I, arising directly from the
higher relative fertility of this land compared to others. The
rental will rise to £1,800 per hectare, and the rate of rent to 90%.

However,
suppose that instead a further £1,000 of capital is invested, and
output rises to 4000 kilos. Total value is then 4000 x £1.20 =
£4,800. Total profit is then £1,800. Average profit on £3,000 is
£600, so the surplus profit is £1,200. The rental is then £1,200
per hectare, whilst the rate of rent falls to 40%.

If we take
the initial situation whereby £1,000 of capital is invested in one
hectare of land, but take the price of production as being £1.40,
with this land producing 1,000 kilos, it then produces a value of
£1,400, a profit of £400, and so a surplus profit of £200,
constituting Differential Rent I. The rate of profit is 40%,
the rental is £200 per hectare, the rate of rent 20%, and the rate
of profit of enterprise 20%.

Suppose now
that an additional £1,000 of capital is invested, and output rises
to 1,950 kilos. The value will rise to £2730. That gives total
profit of £730. Average profit on £2000 is £400, giving surplus
profit of £330, which constitutes rent. The rental, therefore rises
to £330 per hectare, but the rate of rent falls to 330/2000 = 16.5%.

About Me

Left school at 16. Became an ASTMS shop steward at 19, and a lifelong trade union activist. Delegate to North Staffs Trades Council 1974-87. Secretary North Staffs Miners Support Committee 1984-5. President North Staffs Trades Council 1985-6 and 1986-7. Delegate to Staffordshire Association of Trades Councils 1985-7. Delegate West Midlands Regional Council of the TUC 1985-7. Secretary Newcastle UNISON 2000-2.
Member of the International Communist League/Workers Socialist League 1974-87.
Went to University as mature student at age of 24. Obtained Joint Honours Degree in Economics and Politics with Philosophy and Statistics, followed by a Post Graduate Certificate in Education.
Labour Party member since 1974. Stoke City Councillor 1983-4, expelled from Labour group 1983, and resigned from Council in 1984 because of refusing to vote for rent and rate rises, and budget cuts. Staffordshire County Councillor 1997-2005.
Assistant Secretary Stoke District Labour Party 1981, and held pretty much every position from Executive member, to Branch Secretary, and Branch Chair.